'Tis the season: Do's and don'ts of layaway

Retailers such as Sears are seeing a layaway resurgence for the holidays.

The Christmas shopping season is now officially under way. A number of major stores, including Wal-Mart, Toys R Us and Sears, have already rolled out their holiday layaway programs.

"A lot of retailers expect this to be another big year for layaway," said Kathy Grannis, senior director of media relations at the National Retail Federation. "Layaway has re-emerged as a budget-savvy way to keep family spending in check during the holiday shopping season."

Wal-Mart is touting its "free" holiday layaway program in newspaper and TV ads. Last year, it charged a $5 layaway fee but "refunded" it to customers in the form of a store gift card.

"The idea of having a $10 cancellation fee was based on feedback from our customers," Marshall said. "They told us they would rather pay nothing down to open their layaway account and apply that money to their actual purchases, and pay a cancellation fee on the back end if they had to do that."

It's important for shoppers to check, as many stores impose a cancellation fee, including Toys R Us ($10) and Sears ($15).

Consumer advocate Edgar Dworsky, founder of ConsumerWorld.org, has no problem with a small cancellation penalty, as it discourages people from using layaway frivolously. But he would like to see better disclosure.

"The cancellation fee is often hidden in the fine print, which could be easily missed by someone who sees 'Free Layaway' in the bold headline and does not read all the details about the program—which is most of us," Dworsky said.

And there is still a good deal of fine print associated with layaway programs.

"Layaway used to be simple, but not anymore," he told me. "There are lots of rules and there is no uniformity. Even with Kmart and Sears different rules apply, and they're owned by the same company."

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Does layaway still make sense?

Consumer advocates say layaway is a great way to manage a major purchase and stick to a budget, allowing consumers to spread the cost of an item over a number of payments without running up a lot of costly debt.

"The fees, if any, are generally nominal and probably much lower than the interest you'd pay if you purchased those things with a credit card and didn't pay off the bill for several months," said Tod Marks, senior editor and shopping expert at Consumer Reports.

With layaway, you don't have to worry that the store will run out of an item you want," he said. "And it can help restrain impulsive buyers who reach for the credit card whenever they see something they want.

"It forces you to ask yourself if this is something you really want to invest in and then save up before you buy it," Marks said.

Just remember that with layaway, the price locks in when you open the account. So if the item later goes on sale, at that store or at another retailer, you're probably stuck, he said.

"It's a little bit of a risk, but for most people it won't break the bank," Marks said. "And if you're shopping at a discount store like Wal-Mart, the risk is even less."

The negative with layaway is if you cancel and have to pay a fee, but that's still a lot better than not being able to make a payment on your credit card. And that cancellation fee won't hurt your credit score.

Get the most out of layaway

The Better Business Bureau advises that you get everything in writing before you put an item on layaway. Here is a checklist of the important questions to ask:

Is there a fee to open the account?

How much do I have to put down?

How much time do I have to pay off the item?

When are the payments due?

How do I pay? Do I need to come to the store or can I do it online?

Are there any storage or service plan fees?

What happens if I miss a payment? Are there penalties? Does the item return to inventory?

What if I change my mind? Can I get a refund or store credit if I no longer want the item after making a few payments?

Is there a cancellation fee or other penalties that might apply?

What happens if the item goes on sale after I've put it on layaway?

What is the deadline for making the final payment?

What is the deadline for picking up my merchandise?

Don't assume everything can be put on layaway. Most stores limit this service to certain types of merchandise, such as toys, electronics, appliances, furniture and jewelry. Some stores include clothing; others don't.

"It can be complicated, but it's still a valuable thing for people who don't have the money right now to buy something they really want," Dworsky said.